Conquering Inventory Management & Order Fulfillment
Companies are discovering how to better maintain inventory and fill orders with powerful new tools and best practices. Find out how they’re making drastic cuts like 30% less inventory look easy.When managing warehouses, companies aim to reduce costs in two major operations—maintaining inventory and filling customer orders. To make both more efficient, they are not only adopting new technology solutions but also implementing “best practice” procedures. While the high-tech approach involves utilizing new software tools (think “collaborative visibility” and “inventory optimization”), the “best practice” tack entails arranging items in the warehouse or distribution center in the most expedient manner.
One new technology approach is collaborative visibility, which is helping manufacturers work more effectively with suppliers to avoid excess inventory.
“What we found is (that) companies have been working on the top-tier suppliers to take out the waste and create new efficiencies,” says Bill Linquist, a business unit leader for New Jersey-based Ingersoll-Rand Co. Ltd. “But companies aren’t working on the bottom tier suppliers (the remaining 20%) where you still see transactions and inventory waste.”
To help companies better collaborate with these suppliers, Ingersoll-Rand, along with Massachusetts-based software developer SupplyWorks Inc. and Illinois-based third-party logistics provider Roberson Transportation Corp. last year launched The 21st Supplier, a business-to-business service that optimizes discrete manufacturing procurement.
To improve supplier-manufacturer collaboration, the service gives suppliers insight into manufacturers’ inventory levels in real time. “When we provide visibility, inventory naturally goes down without doing anything else because suppliers realize for the first time what is out there,” says Linquist. In fact, he claims that the service has reduced inventory by 10-20% “in every case.”
“When you start to collaborate with your suppliers, it helps them think about what they can do to become more efficient, more effective and how they can execute better,” he says. Through collaborative visibility, suppliers can determine how long inventories will last and can forecast demand. In addition, they can study their own patterns and learn how much and how often they can ship. This will also allow them to cut down their own inventories.
Another cutting edge solution is inventory management optimization. For example, Boston-based Optiant Co. lets firms like Southern Novelties Co., a South Carolina-based packaging company, calculate the correct inventory levels at the correct locations. Its inventory management optimization software helped reduce inventory by maintaining it more strategically.
With Optiant’s software, Southern Novelties figured out that it made sense to hold more inventory upstream—before its metal ends are manufactured for specific products and become more affected by market forces. As a result, the company cut down inventory on its metal ends product line by 30%.
Inventory optimization also aided Arizona-based Dial Corp. Because inventory figures took time to calculate, Dial Corp. was hampered by both excess inventory at the end of every month and too many stock outs at the retail level. To remedy the situation, the company collaborated with New Jersey-based IMI Americas on a software tool that tackles customer fulfillment and affords a real-time view into its manufacturing and distribution network in North America.
“The (key) issue is how you manage the exception—not just planning and execution,” says Henry Bruce, a vice president of IMI Americas. He points out that many companies are skilled at forecasting product demand, but get stumped by day-to-day exceptions.
By gaining insight into its network, Dial was able to handle volatility in product demand planning. “Dial generates demand through promotions which would drive the volatility,” says Bruce. “They have insight now into that demand because they know how much they shipped to retailers (in past) promotion. We capture that and manage against it in the context of the promotion.”
As a result, Dial has been able to even out its demand flow, minimize stock outs and avoid having to dramatically discount extra inventory at the end of every month.
Inventory visibility also helps companies save on inventory costs. For example, customers of Connecticut-based NewRoads Inc., a business process outsourcing firm that offers order fulfillment and other services, can save on inventory costs by receiving products straight from the manufacturer.
For instance, if 60% of the customer’s inventory is fast moving and 40% is slow to leave the shelf, then the company’s overall inventory costs will go up because of the laggards. Through inventory visibility, NewRoads can offer to have the slow-movers shipped directly from the manufacturer to the customer, without stopping at NewRoads’ Kentucky warehouse. “This way our customers don’t have to incur the cost of storing the (slow moving) product here,” says Sally Miller, information technology director at NewRoads.
Another cost-cutting, high-tech approach is creating the “just-in-time” warehouse, which integrates a yard management system with a warehouse management and a transportation management system. The yard system allows companies to streamline the movement of products-laden trailers from yard to dock—including their unloading.
For example, New Hampshire-based ES3 LLC, a third-party distribution provider for the grocery industry, recently built a “just-in-time” warehouse that uses a yard management system from California-based WhereNet Corp, employing wireless, real-time locating system (RTLS) technology. “A lot of the yard maintenance management is gone,” says Geoff Davis, ES3 executive vice president. “We don’t have (those costs) and we don’t have to bill our manufacturers or retailers for it.”
As this example illustrates, receiving provides a huge opportunity to improve order fulfillment. “As we become more effective supply chain managers and get smaller and more frequent receipts, you have to pay attention to receiving,” says Jim Apple, a director and co-founder of The Progress Group, a logistics consulting group. “That’s the process of receiving efficiently; dock to stock time becomes more critical because the less of the stuff I have the more likely it is that what’s coming in the door is needed. I can’t afford to have five trailers sitting out in the yard that I haven’t gotten to yet.”
Improving order fulfillment doesn’t have to involve deployment of the latest technology either. For example, a well-established technology such as bar coding can result in huge efficiency gains. Progressive Distributor magazine looked at inventory costs for over 50 distributors from December 2001 through November 2002 and found that in warehouses where bar coding is used for receiving, picking and tallying up inventory, the cost of carrying inventory was on average 27.6% less than in those where such functions are manually completed.
Another highly effective approach is optimizing warehouse layout. Most distributors continue to store similar products close to each other, reserving warehouse areas for particular product lines. With this layout, finding products may be simple, but order pickers may often have to travel all the way to the back of the warehouse for popular items while slow moving products are needlessly stocked near the shipping, staging and receiving area.
To avoid productivity-draining travel, companies should position the most frequently picked items in the most accessible bins. In this manner, picking can be faster and more efficient, mostly taking place in a small area of the warehouse. In fact, in their study of 50 distributors Progressive Distributor found that less than 50% of stocked items make up 95% of hits (product requests). This means that the remaining half of products that are requested only 5% of the time can be placed farther away from the shipping, staging and receiving area without incurring too much extra travel.
Distributors can also further improve warehouse operations by following some additional layout guidelines. For one, they can store products that tend to be ordered together close to each other. Also, they can consider the order in which items should be pulled from stock in choosing bin locations. For example, if heavy products are usually at the bottom of a pallet, then they should be stored in lower bins or in locations where they can be picked first.
Indeed, when it comes to inventory management and order fulfillment, both high-tech and low-tech solutions can help your company drastically cut costs and dramatically improve efficiency.
Sources: Technology to the Rescue
Peter Strozniak
Frontline Solutions, Feb. 1, 2003
http://www.frontlinetoday.com/frontline/content/printContentPopup.jsp?id=47208
The Culture of Warehouse Management
Jon Schreibfeder
Progressive Distributor, Jan. 2003
http://www.mrotoday.com/progressive/archives/E-business/CultureWarehouse.htm
Getting Order Fulfillment Right
Modern Materials Handling, Feb. 1, 2003
http://www.manufacturing.net/mmh
By Katrina C. Arabe
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